So it’s official: cash use is back in almost full force in the Indian economy. Cash withdrawals from ATM machines – a reasonable if incomplete proxy for the use of cash in the economy – are nearly back to the level of just before the demonetisation shock of 8 November 2016. RBI data on use of debit and credit cards to withdraw money from ATMs show that such withdrawals, which had collapsed to only Rs 850 billion in December 2016 largely because of the sheer unavailability of cash with such machines, amounted to Rs 2.27 trillion in July 2017, only slightly below the Rs 2.55 trillion withdrawals recorded for October 2016.

It is worth noting that this reliance on cash is back despite the fact that the RBI is yet to remonetise the economy fully: currency with the public on 15 September 2017 was still 11 per cent below its level of a year earlier. It cannot simply be assumed (as was done in the Economic Survey 2016-17 Volume II) that this reflects lower demand from currency by the public, since there is no evidence that it is not supply-constrained. Rather, the aggressive return of cash use suggests that it has only been the lack of supply of cash that has constrained people from using it in payments and exchange settlement.

Indeed, it is likely that if the RBI does fully remonetise, then cash use will increase further, since the economy is still growing and therefore the volume and value of total transactions must increase. What is more surprising is that total digital payments have not increased more along with economic growth. In fact such payments, which peaked dramatically in December 2016, are also back to the levels broadly seen in September-October 2016, despite the many incentives provided for such payments through official policy.

This makes it apparent that demonetisation failed on this front as well, in addition to the spectacular failure of not being able to flush out “black money” from the system since almost all the banned notes were returned to banks. The aim of digitisation of the economy by forcing a comprehensive shift to cashless electronic means of payment was declared to be one of the primary goals of that expensive and economically damaging exercise. But now it seems that such a coercive process was untenable: the shift to cashlessness cannot be forced upon people, especially in the absence of other enabling and supporting conditions.

Of course, it is true that some digital payments, such as debit card use at point of sale, are increasing, albeit relatively slowly and probably at the same rate that they were increasing before the demonetisation move. The total amount involved in mobile wallet transactions has also increased from Rs 33 billion in October 2016 to Rs 69 billion in July 2017 – but this is still lower than the amount of Rs 84 billion recorded in January 2017. This suggests that the supposed convenience of mobile wallets may have been overplayed, especially in relation to the costs imposed upon transactors because of the need to ensure some returns to such e-wallet providers.

So what is it that makes cash use so central to economic activity in India and makes even the enforced digitisation of transactions so difficult and so transient? One obvious answer is the sheer inadequacy of the infrastructure and connectivity required for electronic payments. The basic banking infrastructure is far from providing universal access, despite the claims of the Jan Dhan Yojana; the cyber infrastructure for adequate Point of Sale machines is still massively below requirement; the most basic issues of lack of connectivity and frequent breakdown of internet communications and mobile telephony services continue to plague would-be users. These problems are clearly greater in underserved and far-flung rural areas with difficult geography, but they are also very much present in urban areas, including our largest metros.

All this should have been apparent to anyone when the move was announced, and indeed was pointed out repeatedly by several observers. But the enthusiasm with which various officials rushed to prove their loyalty to the cause, such that villages and sometimes entire districts and even states were declared “cashless” in a few weeks, served to obscure that reality. As it happens, most of those “cashless” localities were never anything near that, and most of them have reverted to almost complete cash use for daily transactions. For example, the village of Dhasai in Maharashtra was proudly declared to be the first cashless village in that state, but within a few months it was apparent that lack of continuous electricity supply (with frequent and extended power cuts) and poor mobile and landline connectivity, such that sometimes networks are unavailable for as long as a week at a time, meant that the few Point of Sale machines in the village were effectively dysfunctional. Similarly, the government of Goa had declared that the state would become fully cashless by 31 December 2016 – but nine months later, the use of cash is not only extensive across the state, but in many situations it is the only available option for would-be purchasers.

There are of course other concerns with digital transactions: the lack of privacy and enhanced possibilities of surveillance; the risks of being exposed to identity theft and other cybercrime; the possible compromising of personal data leading to financial loss because of very poor cyber security laws and systems in India, and so on. But it is also likely that the biggest factor holding back digitisation is the lack of infrastructure and connectivity, and these are issues that can only be dealt with slowly and systematically, not through grandiose announcements and threats.

Many in the government appeared to believe that the introduction of the Goods and Services Tax would be one more force pushing people towards digital transactions. The argument was that the trail of transactions required to claim refunds on GST would make it preferable for producers, suppliers, traders and other businessmen to move to electronic transactions that would be easier to monitor and calculate, and would also make the filing of returns easier. But the GST itself is plagued with massive design flaws and very shoddy implementation, which has even acted as an incentive to rely more on cash transactions. The multiplicity of rates, the complexity of the system, the widespread confusion about different categories, the costs and sheer difficulties in even filing online returns, have all meant that small businesses in particular have reverted to cash. Even in big megacities like Delhi, consumers can testify to the fact that the “kaccha bill” of items written on a piece of paper has made a comeback in a big way.

The failure of this attempt at digitisation is the result of what now appears to be a basic flaw in the approach of this central government towards much policy: a cart-before-horse attitude that does not take into account the wider context, underlying factors and supportive and enabling conditions that must be met for any policy measure to succeed. That is why we have a Swachh Bharat Abhiyan in which people are rushing around building basic toilets to fulfil targets, without addressing the problem of water supply for these toilets, or taking into consideration the implications for workers who must be the backbone of any proper sanitation system. That is why the “Make in India” programme is floundering, with no significant increase in private investment, because the essential requirements such as good transport infrastructure and amenities are not first taken care of. That is why most declared “Smart Cities” are turning out to be anything but that, because the planning and painstaking effort required to create properly functioning urban models is simply absent.

As long as the government is focussed on optics and flamboyant announcements rather than actual delivery and meeting of its own promises, such a state of affairs will continue. It remains to be seen whether the government’s admittedly expert media management and public relations wizardry will continue to be as effective in that future context.

We may be living through one of those moments in history that future historians will look back on as a watershed, a period of flux that marked a transition to quite different economic and social arrangements. Unfortunately, in human history a ‘moment’ can be a very long time, so long that it could be decades before the final shape of the new arrangements are even evident; and in the interim, there could be many ‘dead cat bounces’ of the current system.

What is clear is that the established order – broadly defined as neoliberal globalised finance capitalism – is no longer capable of delivering on its promises of either growth or stability, even as it generates more inequality and insecurity across the world. In Marxist terms (as befitting the 150th anniversary of Das Kapital), the property relations under which production is organised have become fetters on the development of productive forces themselves, and generate more and more alienation. This may explain why, perhaps even more significantly, the system is also losing legitimacy in most countries, under attack from both right and left.

Whether we look at straws in the wind or green shoots in the ground, there is no doubt that there are incipient signs of change. But at this point there are many directions in which such change could go, and not all of them are progressive or even desirable. That is why it is important to get social and political traction for alternative trajectories that focus on more equitable, just, democratic and ecologically viable outcomes for most of humanity.

A familiar question

The question ‘what is your alternative?’ is a familiar one for most progressives, and too often we are overly defensive or self-critical about our supposed lack of alternatives. In truth, there are many economically-viable, socially-desirable alternative proposals in different contexts. The problem is not their lack of existence but their lack of political feasibility, and perhaps their lack of wider dissemination. But it is certainly true that the alternative does not consist of one over-arching theory (or even framework) that can subsume all others, since there are many good reasons for being sceptical of the days of the ‘grand theory’ that supposedly could take care of everything.

While rejecting the totalising theory, it is possible to think of a broad framework around which there could be much agreement, even among people who do not necessarily identify themselves as of the ‘left’, but are nevertheless dissatisfied with current economic arrangements at both national and international levels.

Much current discussion on economic strategies for global capitalism is framed around the financial crisis of 2007/8 and its continuing repercussions. But it does not really need a crisis to show us that the past strategy for growth and development has been flawed in most countries. Even during the previous boom, the pattern of growth had too many limitations, paradoxes and inherent fragilities. Everyone now knows that the economic boom was unsustainable, based on speculative practices that were enabled and encouraged by financial deregulation. It also drew rapaciously and fecklessly on natural resources, and it was deeply unequal. Contrary to general perception, most people in the developing world, even within the most successful region of Asia, did not gain.

Global transfers

The financial bubble in the US attracted savings from across the world, including from the poorest developing countries, so that for at least five years the global South transferred financial resources to the North. Developing country governments opened their markets to trade and finance, gave up on monetary policy and pursued fiscally ‘correct’ deflationary policies that reduced public spending. Development projects remained incomplete and citizens were deprived of the most essential socio-economic rights.

A net transfer of jobs from North to South did not take place. In fact, industrial employment in the South barely increased in the past decade, even in the ‘factory of the world’, China. Instead, technological change in manufacturing and new services meant that fewer workers could generate more output. Old jobs in the South were lost or became precarious and the majority of new jobs were fragile, insecure and low-paying, even in fast-growing China and India. The persistent agrarian crisis in the developing world hurt peasant livelihoods and generated global food problems. Rising inequality meant that the much-hyped growth in emerging markets did not benefit most people, as profits soared but wage shares of national income declined sharply.

Almost all developing countries adopted an export-led growth model, which in turn suppressed wage costs and domestic consumption in order to remain internationally competitive and achieve growing shares of world markets. This led to the peculiar situation of rising savings rates and falling investment rates (especially in several Asian countries) and to the holding of international reserves that were then placed in ‘safe’ assets abroad. This is why the boom that ended in 2007/8 was associated with the South (especially in developing Asia) subsidising the North: through cheaper exports of goods and services, through net capital flows from developing countries to the US in particular, through flows of cheap labour in the form of short-term migration.

Profit-led costs

The collapse in Northern export markets that followed the recession brought that process to a halt, and recent moves towards more protectionist strategies in the US and elsewhere, as well as the persistent mercantilist approach of surplus-producing countries like Germany, have made it more difficult since then. In any case, such a strategy is unsustainable beyond a point, especially when a number of relatively large economies use it at the same time.

In this boom, domestic demand tended to be profit-led, based on high and growing profit shares in the economy and significant increases in the income and consumption of newly-globalised middle classes, which led to bullish investment in non-tradeable sectors such as financial assets and real estate as well as in luxury goods and services. The patterns of production and consumption that emerged meant that growth also involved rapacious and ultimately destructive exploitation of nature and the environment. The costs – in terms of excessive congestion, environmental pollution and ecological degradation – are already being felt, quite apart from the implications such expansion has on climate change.

There have been other negative impacts. Within developing Asia, for example, it led to an internal ‘brain drain’ with adverse implications for the future. The skewed structure of incentives generated by the explosive growth of finance directed the best young minds towards careers that promised quick rewards and large material gains rather than painstaking but socially necessary research and basic science. The impact of relocation of certain industries and the associated requirement for skilled and semi-skilled labour led to increased opportunities for educated employment, but it also led bright young people to enter work that is typically mechanical and does not require much originality or creativity, with little opportunity to develop their intellectual capacities.

At the same time, crucial activities were inadequately rewarded. Farming in particular became increasingly fraught with risk and subject to growing volatility and declining financial viability, while non-farm work did not increase rapidly enough to absorb the labour force even in the fastest growing economies of the region.

Restructuring economic relations

The boom was not stable or inclusive, either across or within countries. The subsequent slump (or ‘secular stagnation’) has been only too inclusive, forcing those who did not gain earlier to pay for the sins of irresponsible and unregulated finance. As economies slow down, more jobs are lost or become more fragile, insecure and vulnerable; and people, especially those in the developing world who did not gain from the boom, face loss of livelihood and deteriorating conditions of living. This is why it is so important that we restructure economic relations in a more democratic and sustainable way.

There are several necessary elements of this. Globally, most now recognise the need to reform the international financial system, which has failed to meet two obvious requirements: preventing instability and crises, and transferring resources from richer to poorer economies. Not only have we experienced much greater volatility and propensity to financial meltdown across emerging markets and now even industrial countries, but even the periods of economic expansion were based on the global poor subsidising the rich.

Within national economies, this system has encouraged pro-cyclicality: it has encouraged bubbles and speculative fervour rather than real productive investment for future growth. It has rendered national financial systems opaque and impossible to regulate. It has allowed for the proliferation of parallel transactions through tax havens and loose domestic controls. It has reduced the crucial developmental role of directed credit.

Given these problems, there is no alternative but systematic state regulation and control of finance. Since private players will inevitably attempt to circumvent regulation, the core of the financial system – banking – must be protected, and that is only possible through social ownership. Therefore, some degree of socialisation of banking (and not just the risks inherent in finance) is inevitable. In developing countries this is also important because it enables public control over the direction of credit, without which no country has industrialised.

Desirable – and necessary

The obsessively export-oriented model that has dominated the growth strategy for the past few decades must be reconsidered. This is not a just a desirable shift – it has become a necessity given the obvious fact that the US and the EU are no longer engines of world growth through increasing import demand in the near future. This means that both developed and developing countries must seek to redirect their exports to other countries and most of all to redirect their economies towards more domestic demand. This requires a shift towards wage-led and domestic demand-led growth, particularly in the countries with economies large enough to sustain this shift. This can happen not only through direct redistributive strategies but also through public expenditure to provide more basic goods and services.

This means that fiscal policy and public expenditure must be brought back centre stage. Calls to end austerity are becoming more widespread in the developed world and will soon find their counterpart in developing countries. Clearly, fiscal stimulus is now essential, to cope with the adverse real-economy effects of the current crisis/stagnation and to prevent economic activity and employment from falling, and then to put good, quality employment on a stable footing. Fiscal expenditure is also required to undertake and promote investment to manage the effects of climate change and promote greener technologies. Public spending is crucial to advance the development project in the South and fulfil the promise of achieving minimally acceptable standards of living for everyone in the developing world.

Social and economic rights

Social policy – the public responsibility for meeting social and economic rights of citizens – contributes positively to both growth and development. This means especially the provision of universal good quality care services, funded by the state, with care workers properly recognised, remunerated and provided with decent working conditions. This also helps to reduce gender and other social inequalities generated by the imposition of unpaid care work, and has strong multiplier effects that allow for more employment increases over time and generate a ‘bubbling up’ of economic activity.

There must be conscious attempts to reduce economic inequalities, both between and within countries. We have clearly crossed the limits of what is ‘acceptable’ inequality in most societies, and policies will have to reverse this trend. Globally and nationally, we must reduce inequalities in income and wealth, and most significantly in the consumption of natural resources.

This is even more complicated than might be imagined because unsustainable patterns of production and consumption are deeply entrenched in richer countries and are aspired to in developing countries. But many millions of citizens of the developing world still have poor or inadequate access to the most basic conditions of decent life, such as electricity, transport and communication links, sanitation, health, nutrition and education. Ensuring universal provision across the global South will inevitably require greater per capita use of natural resources and more carbon-emitting production.

Both sustainability and equity therefore require a reduction of the excessive resource use of the rich, especially in developed countries but also among the elites in the developing world. This means that redistributive fiscal and other economic policies must be especially oriented towards reducing inequalities of resource consumption, globally and nationally. Within countries, for example, essential social and developmental expenditure can be financed by taxes that penalise resource-wasteful expenditure.

New demand and production

This requires new patterns of demand and production. It is why the present focus on developing new means of measuring genuine progress, well-being and quality of life are so important. Quantitative GDP growth targets, which still dominate the thinking of policy-makers, are not simply distracting from these more important goals but can be counterproductive.

For example, a chaotic, polluting and unpleasant system of privatised urban transport involving many vehicles and over-congested roads generates more GDP than a safe, efficient and affordable system of public transport that reduces congestion and provides a pleasant living and working environment. It is not enough to talk about ‘cleaner, greener technologies’ to produce goods that are based on the old and now discredited pattern of consumption. Instead, we must think creatively about consumption itself, and work out which goods and services are more necessary and desirable for our societies.

This cannot be left to market forces, since the international demonstration effect and the power of advertising will continue to create undesirable wants and unsustainable consumption and production. But public intervention in the market cannot be knee-jerk responses to constantly changing short-term conditions. Instead, planning – not in the sense of the detailed planning that destroyed the reputation of command regimes, but strategic thinking about the social requirements and goals for the future – is absolutely essential. Fiscal and monetary policies, as well as other forms of intervention, will have to be used to redirect consumption and production towards these social goals, to bring about such shifts in socially-created aspirations and material wants, and to reorganise economic life to be less rapacious and more sustainable.

Since state involvement in economic activity is now an imperative, we should be thinking of ways to make involvement more democratic and accountable within our countries and internationally. Large amounts of public money will be used for financial bailouts and to provide fiscal stimuli. How this is done will have huge implications for distribution, access to resources and living conditions of the ordinary people whose taxes will be paying for this. So it is essential that we design the global economic architecture to function more democratically. And it is even more important that states across the world, when formulating and implementing economic policies, are more open and responsive to the needs of the majority of their citizens.

International framework

These are general points and obviously leave much to the specific contexts of individual countries and societies. But finally, we need an international economic framework that supports all this, which means more than just that capital flows must be controlled and regulated so that they do not destabilise these strategies.

The global institutions that form the organising framework for international trade, investment and production decisions need to change and become not only more democratic in structure but more genuinely democratic and people-oriented in spirit, intent and functioning. This is particularly the case with respect to the dissemination of knowledge, now privatised and concentrated thanks to the privileging of intellectual property rights. Financing for development and conservation of global resources must become the top priorities of the global economic institutions.

These proposals may seem like a tall order, but human history is replete with stories of major reversals of past trajectories and transformations that come when they are not expected and from directions that are unpredictable. What has been created and implemented by human agency can also be undone to bring in better alternatives. It may well be that the time is ripe in terms of greater social acceptance of such ideas and thoughts about how to refine and adapt them to particular contexts.

This is the final part of a three-part interview with economist Jayati Ghosh, conducted by Lynn Fries of the Real News Network. (Parts 1 and 2 are available here and here, respectively.) Ghosh discusses the shape of imperialism in the 21st century, touching on themes also developed in her article “Globalization and the End of the Labor Aristocracy” (previously published by Triple Crisis: Part 1, Part 2, Part 3, Part 4). —Eds.

Lynn Fries: This is The Real News. I’m Lynn Fries in Geneva. And this is Part 3 of a conversation on Imperialism in the 21st Century with our guest, Jayati Ghosh. A professor of economics at Jawaharlal Nehru University, Jayati Ghosh is based in India, New Delhi and is here in Geneva for a visit. Welcome.

Jayati Ghosh: Thank you.

Lynn Fries: In Part 2 you spoke about structures of global production and trade and the implications for workers. Talk now about how new forms of economic territory are being created.

Jayati Ghosh: Capitalism has always been remarkably agile in terms of responding to new conditions and creating new markets. And in the late 20th century and the early part of the 21st century, it has been exceptionally adept at creating new markets in areas that were earlier not thought of as markets at all. One of the significant ways it has done this is through public provision and the massive reduction in public provision. In other words, neoliberalism, as we’ve talked about, it does many things. But one of the things it is very, very keen on is fiscal austerity, a reduction of public spending. And particularly public spending designed to ensure the social and economic rights of citizens.

Now, what does that mean? It means, for example, that you can privatize things like electricity, the water supply, and so on but it also means that your municipal water supply may not give you drinkable water. So everybody’s forced to go to the bottled water which, by the way, is a relatively new industry. In the developing world nobody had bottled water until about 20 years ago. And now you will find even in the villages of India, in the swamps of Thailand, you will find bottled water being sold because nobody can trust whether the municipal or the local water supply is potable. That’s a whole new market that has been delivered.

The market for health care, expanding dramatically, again in India because the state does not provide adequate health care people are forced to private providers. And so it’s a whole new area for capitalist expansion. You can provide health care often at completely unaffordable rates, throwing families into debt and poverty and so on, because of the fact that you’re not able to access this through public provision.

The market for higher education, massive increase in privatized education across the world, both developed and developing countries. Again, a reflection of the fact that it’s no longer provided through the public. So one major way in which you’ve actually created a whole new market is by denying the public provision of these and therefore enabling profits to be made through the private.

You have another form which is intellectual property rights. You have created a market for knowledge, a market. Now, this is very significant. Knowledge, it’s true, has always been power. Historically, the powerful have tried to monopolize knowledge or control it. That’s inevitably the case. But it is very, very recent that knowledge has become a marketable commodity. Where you can capture it and sell it and privatize it and make profits out of it. That’s relatively new and that’s a creation of a whole new market out of something that really, in a sense you would say, is a contradiction in terms. Because while knowledge is power, we also know that knowledge grows only when it’s shared. We know that for humanity, as a whole, the more you constrict knowledge the less actually knowledge expands. And this is also true of societies. Societies that have constricted knowledge have, in a sense, collapsed. There is a wonderful book by Jared Diamond that talks about this. Yet, we find that recent tendencies in terms of valuing intellectual property rights have actually made this constriction of knowledge a huge source of profitability for companies.

Finally, I’d like to talk about a very innovative way in which a market is being created in India. We had demonetization recently. In November last year, our Prime Minister suddenly announced demonetization of five hundred rupee and thousand rupee notes which actually overnight took out 86% of the currency in circulation, in an economy which operated 95% on cash transactions. So you can imagine the disruption and dislocation that this has caused. But what is more significant is that more than seven months since this was announced, you still don’t have all that currency put back in circulation. Only about 70% of that amount has been replaced in terms of new currency. And the whole idea is that you push everybody into digital transactions, including the poor. The whole idea is that everybody must move to digital transactions because that’s modern. That’s the way of the future, and so on.

Now what do digital transactions do? They actually make you pay for the transaction. Whether it is a bank or it is one of those phone payment systems or whatever. All of these new ePayment systems, they are a source of profitability for some financial company or what are called Fintech companies. So you have created a whole new market. In a sense, it’s extraordinary. This is the financialization of money. You are making a profit out of the very act of transacting. And you’re doing this often from the poorest of the poor. So yet another means of creating a market through different measures. All designed to somehow lift capitalism out of the stagnation that it’s pushed itself into because it has suppressed wage incomes.

Lynn Fries: This is the closing segment. So round off the conversation with some closing thoughts and then lets move to comments on the outlook ahead.

Jayati Ghosh: I think the last three decades have been extraordinary for global capitalism because they have changed so much of the way in which it operates. They have shifted from explicit power relations to implicit rules and regulations that are determined by an international legal and institutional architecture. So governments tell their citizens, “We have no choice because these rules don’t allow us to do something any other way. And so we cannot meet your requirements as citizens.”

We have a shift in the power relations in terms of new powers emerging, national powers in Asia certainly but you know, the BRICS countries and so on. But these powers themselves are very much under the sway of their own national capitalists and so it’s not something that has necessarily benefited their own working classes and their citizens in the same way.

We have the emergence of an entire range of new markets that have been created by global capitalism simply because they need to find new markets as the earlier markets that they had relied on have been suppressed by their own suppression of wage incomes.

And then, finally, we have this fundamental contradiction which is that as global capitalism gets less and less regulated and more and more powerful, it also finds that, in a sense, it cannot generate within itself the sustenance that it needs. In terms of the old prey-predator relationship, the predator is running out of prey. You cannot actually keep expanding if you keep suppressing wage incomes globally. You can find new ways of doing, a shift here and an expansion there at the expense of someone else but you can’t sustain this at a global level.

And that gives rise to what we’re seeing today which is secular stagnation in a situation of rising inequality and rising frustration. And that, in turn, creates two senses in which the current system is unstable. It’s unstable, as I said, because capitalism cannot deliver the growth that it has promised all along for the reasons that I’ve just mentioned. And it’s unstable because it is definitely creating a political fallout. Across the world, there is resentment. It’s being contained or met in different ways but it’s erupting continuously over and over again. And I do believe that this will create a much broader demand for significant change over the next decade.

Lynn Fries: Comment further on your outlook for this significant change as the global unrest that weve seen often gets expressed in reactionary forms rather than a progressive vision of worker solidarity.

Jayati Ghosh: I do believe that across the world there is a demand among younger people for progressive alternatives. But yes, at the moment there’s no doubt that the political reaction is really pitting workers against other workers in different countries from different areas against migrants. It’s pitting ordinary citizens against one another rather than everyone combining against global capital. And it is also reducing the sense of international solidarity, which I think is essential for a genuinely progressive movement.

But I don’t think that this is inevitable and I don’t think it’s written in stone. I think we know from history that these things change, and they can change often quite rapidly, and sometimes over a longer period of time. We are entering a phase of global instability, there’s no getting away from it. I think, whether you call this secular stagnation or what have you, these problems are now really deep, extensive, and they’re across the board.

There is a perception among, let’s say, workers in the North that all workers in the South have it really good. They’re getting better and better off. And Chinese workers are getting better off all the time and everything is wonderful. It’s much more complicated in China. It’s true that real wages have risen dramatically. That even while in China inequality has grown, real wages have risen and therefore the bottom has also increased in terms of its welfare. But it’s combined with such severe environmental problems, such severe insecurity in a whole range of other things, that in fact it’s not such an easy equation that everyone is better off.

Now all of these mean that the current system is, I believe, deeply unsustainable. Does it mean that immediately we’re going to see progressive alternatives? Not necessarily but I do think that these are there and they often come from directions that we’re not looking at. We are always looking at the established parties, and established political forces, and saying, “Well, you know, this one won’t do, and that one’s lost energy,” and so on. But through history we have known that political movements have emerged often from the most unexpected sources. And once they capture the imagination they have a spread and an extent that is quite extraordinary.

It is also true, however, and this is the caveat, that, you know, today we also have a global media that is much more corporate controlled and that is much more active in presenting the interests of global capital, whether in the developed world or in the developing world. And that media plays a very negative role. We have alternative media, which is still very, very small, like the Real News Network. But we don’t have enough of a spread and a power to actually capture the minds and hearts of people in a significant way. Nonetheless, I do believe that there are forces of change out there which can be progressive and ultimately will be progressive. Which are already in the making, and which will become much more forceful.

Lynn Fries: We have to leave it there in this conversation with our guest, Jayati Ghosh, on Imperialism in the 21st Century. Jayati Ghosh, thank you.

Jayati Ghosh: Well it was great to be with you. I’m happy to have come.

]]>Globalization and the End of the Labor Aristocracy, Part 4http://triplecrisis.com/globalization-and-the-end-of-the-labor-aristocracy-part-4/
Mon, 08 May 2017 12:51:31 +0000http://triplecrisis.com/?p=13268This is the concluding part of a four-part article by Jayati Ghosh, published in the March/April 2017 special “Costs of Empire” issue of Dollars & Sense magazine. Parts 1, 2, and 3 are available here, here, and here respectively. In this section, Prof. Ghosh focuses on the erosion of labor incomes in the high-income countries and the implications for politics there.

A recent report from the McKinsey Global Institute, “Poorer than Their Parents? Flat or falling incomes in advanced economies” (July 2016) shows how the past decade has brought significantly worse economic outcomes for many people in the developed world.

Falling Incomes

In 25 advanced economies, 65-70% of households (540-580 million people) “were in segments of the income distribution whose real incomes were flat or had fallen” between 2005 and 2014. By contrast, between 1993 and 2005, “less than 2 percent, or fewer than ten million people, experienced this phenomenon.”

In Italy, a whopping 97% of the population had stagnant or declining market incomes between 2005 and 2014. The equivalent figures were 81% for the United States and 70% for the United Kingdom.

The worst affected were “young people with low educational attainment and women, single mothers in particular.” Today’s younger generation in the advanced countries is “literally at risk of ending up poorer than their parents,” and in any case already faces much more insecure working conditions.

Shifting Income Shares

The McKinsey report noted that “from 1970 to 2014, with the exception of a spike during the 1973–74 oil crisis, the average wage share fell by 5 percentage points in the six countries studied in depth” (United States, United Kingdom, France, Italy, the Netherlands and Sweden); in the “most extreme case, the United Kingdom, by 13 percentage points.”

These declines occurred “despite rising productivity, suggesting a disconnect between productivity and incomes.” Productivity gains were either grabbed by employers or passed on in the form of lower prices to maintain competitiveness.

Declining wage shares are widely seen as results of globalization and technological changes, but state policies and institutional relations in the labor market matter. According to the McKinsey report. “Swedish labor policies such as contracts that protect both wage rates and hours worked” resulted in ordinary workers receiving a larger share of income.

Countries that have encouraged the growth of part-time and temporary contracts experienced bigger declines in wage shares. According to European Union data, more than 40% of EU workers between 15 and 25 years have insecure and low-paying contracts. The proportion is more than half for the 18 countries in the Eurozone, 58% in France, and 65% in Spain.

The other side of the coin is the rising profit shares in many of these rich countries. In the United States, for example, “after-tax profits of U.S. firms measured as a share of the national income even exceeded the 10.1 percent level last reached in 1929.”

Policy Matters

Government tax and transfer policies can change the final disposable income of households. Across the 25 countries studied in the McKinsey report, only 20-25% of the population experienced flat or falling disposable incomes. In the United States, government taxes and transfers turned a “decline in market incomes for 81 percent of all income segments … into an increase in disposable income for nearly all households.”

Government policies to intervene in labor markets also make a difference. In Sweden, the government “intervened to preserve jobs, market incomes fell or were flat for only 20 percent, while disposable income advanced for almost everyone.”

In most of the countries examined in the study, government policies were not sufficient to prevent stagnant or declining incomes for a significant proportion of the population.

Effects on Attitudes

The deteriorating material reality is reflected in popular perceptions. A 2015 survey of British, French, and U.S. citizens confirmed this, as approximately 40% “felt that their economic positions had deteriorated.”

The people who felt worse-off, and those who did not expect the situation to improve for the next generation, “expressed negative opinions about trade and immigration.”

More than half of this group agreed with the statement, “The influx of foreign goods and services is leading to domestic job losses.” They were twice as likely as other respondents to agree with the statement, “Legal immigrants are ruining the culture and cohesiveness in our society.”

The survey also found that “those who were not advancing and not hopeful about the future” were, in France, more likely to support political parties such as the far-right Front National and, in Britain, to support Brexit.

Effects on Politics

Decades of neoliberal economic policies have hollowed out communities in depressed areas and eliminated any attractive employment opportunities for youth. Ironically, in the United States this favored the political rise of Donald Trump, who is himself emblematic of the plutocracy.

Similar tendencies are also clearly evident in Europe. Rising anti-EU sentiment has been wrongly attributed only to policies allowing in more migrants. The hostile response to immigration is part of a broader dissatisfaction related to the design and operation of the EU. For years now, it has been clear that the EU has failed as an economic project. This stems from the very design of the economic integration—flawed, for example, in the enforcement of monetary integration without banking union or a fiscal federation that would have helped deal with imbalances between EU countries—as well as from the particular neoliberal economic policies that it has forced its members to pursue.

This has been especially evident in the adoption of austerity policies across the member countries, remarkably even among those that do not have large current-account or fiscal deficits. As a result, growth in the EU has been sclerotic at best since 2004, and even the so-called “recovery” after 2012 has been barely noticeable. Even this lacklustre performance has been highly differentiated, with Germany emerging as the clear winner from the formation of the Eurozone. Even large economies like France, Italy, and Spain experienced deteriorating per capita incomes relative to Germany from 2009 onwards. This, combined with fears of German domination, probably added to the resentment of the EU that is now being expressed in both right-wing and left-wing movements across Europe.

The union’s misguided emphasis on neoliberal policies and fiscal austerity packages has also contributed to the persistence of high rates of unemployment, which are higher than they were more than a decade ago. The “new normal” therefore shows little improvement from the period just after the Great Recession—the capitalist world economy may no longer be teetering on the edge of a cliff, but that is because it has instead sunk into a mire.

It is sad but not entirely surprising that the globalization of the workforce has not created a greater sense of international solidarity, but rather undermined it. Quite obviously, progressive solutions cannot be found within the existing dominant economic paradigm. But reversions to past ideals of socialism may not be all that effective either. Rather, this new situation requires new and more relevant economic models of socialism to be developed, if they are to capture the popular imagination.

Such models must transcend the traditional socialist paradigm’s emphasis on centralized government control over an undifferentiated mass of workers. They must incorporate more explicit emphasis on the rights and concerns of women, ethnic minorities, tribal communities, and other marginalised groups, as well as recognition of ecological constraints and the social necessity to respect nature. The fundamental premises of the socialist project, however, remain as valid as ever: The unequal, exploitative and oppressive nature of capitalism; the capacity of human beings to change society and thereby alter their own futures; and the necessity of collective organisation to do so.

NOTE: Parts of this article appeared in “The Creation of the New Imperialism: The Institutional Architecture,” Monthly Review, July 2015.

]]>Globalization and the End of the Labor Aristocracy, Part 3http://triplecrisis.com/globalization-and-the-end-of-the-labor-aristocracy-part-3/
Thu, 27 Apr 2017 16:02:13 +0000http://triplecrisis.com/?p=13250This is Part 3 of a four-part article by Jayati Ghosh, published in the March/April 2017 special “Costs of Empire” issue of Dollars & Sense magazine. Parts 1 and 2 are available here and here, respectively. The final part will appear on Triple Crisis next week. In this section, Prof. Ghosh focuses on the current structure of globalized production and its implications for the distribution of income within and between countries.

It is often argued that the rise of new powers—especially China, but also India, Brazil and others—means that the concept of “imperialism” is no longer valid. Yet the imperialist phase of capitalism has always been characterised by the emergence of “new kids on the block,” some of which have gone on to become neighborhood bullies. At the time when Lenin wrote his famous pamphlet Imperialism: The Highest Stage of Capitalism, a century ago, the emergence of the United States as the dominant global power was far from evident. Lenin’s claim that, during the imperialist phase of capitalism, “the territorial division of the whole world among the biggest capitalist powers is completed” is the weakest link in his argument, and one which was belied almost immediately. The United States, which was then only a minor player compared to the major European powers, emerged to dominate the world scene from the second half of the 20th century on. The rise of Japan in the second half of the 20th century by no means signified a weakening of imperialist power generally; it merely necessitated a more complicated assessment of such power.

The recent emergence of China is being interpreted as a sign that the global economic landscape is completely transformed. It is true that the growing weight of China in world trade and investment has had major effects: China has become the biggest source of manufactured-goods imports for most countries, changed the terms of trade and volume of exports for many primary-product (agricultural and mineral raw materials) producing countries, and brought more countries into manufacturing value chains. It is true, also, that Chinese capital has become a significant player in the ongoing struggle for control over economic territory across the world.

Yet there are dangers of exaggerating its current significance. Even now, China accounts for less than 9% of global output (constant 2005 U.S. dollars, nominal exchange rates); its per capita GDP is less than half (around 45%) of the global average, and still just fraction of the average for the economies of the imperialist core. In relative terms, China remains a “poor” country. Many of the hyperbolic mainstream analyses and predictions with respect to China are eerily similar to the predictions for Japan in the 1970s, as an emerging giant soon to take over the role of global economic leadership from the United States.

A similar point can be made even more forcefully for other nations that have been ecstatically described as “emerging economies,” supposedly proving that forces of imperialism are no hindrance to the rise of developing countries. Taken together, however, the “BRICS” nations (Brazil, Russia, India, China, and South Africa) account for less than 15% of world GDP, even though their share of global population is just under 50%. Announcing these countries as new global powers is very premature, especially when global institutional structures are still very much tilted in favor of the established powers.

All this does not mean that there have been no changes in global economic and political power: there have been and will continue to be significant and even transformative changes. However, these changes in the relative positions of different countries on the economic and geopolitical ladder do not mean that the basic imperialistic tendencies that drive the global system have disappeared—indeed, they may even become more intense as the struggle for economic territory becomes more acute.

This is particularly evident in the global spread of multinational corporations and their new methods of functioning, particularly with the geographic disintegration of production. Technological changes—advances in shipping and container technology that dramatically reduced transport times and costs, as well as the information technology revolution that enabled the breakdown of production into specific tasks that could be geographically separated—have been critical to this process. Together, they made possible the emergence of global value chains, which are typically dominated by large multinational corporations, but involve networks of both competing and cooperating firms. The giant corporations are not necessarily in direct control of all operations. Indeed, the ability to transfer direct control over production—as well as the associated risks—to lower ends of the value chain is an important element in increasing their profitability. This adds a greater intensity to the exploitation that can be unleashed by such global firms, because they are less dependent upon workers and resources in any one location, can use competition between suppliers to push down their prices and conditions of production, and are less burdened by national regulations that might reduce their market power.

Smiling Curve of Exchange Values and Profits

This transformation has therefore given rise to what has been called the “Smiling Curve” of exchange values and profits. Value added and profits are concentrated in the pre-production (such as product design) and post-production (marketing and branding) phases of a value chain. These now provide immense economic rents to the global corporations that dominate them, due to the intellectual property monopolies these corporations enjoy. The case of Apple phones is now well known: the actual producers in China (both companies and workers) earn only about one-tenth of the final price of the good; the rest is taken by Apple for product design, marketing, and distribution. The producers of coffee beans across the developing world earn a tiny percentage of the price of coffee, in contrast to the high profits of a multinational chain like Starbucks. Small farmers and laborers growing cocoa beans earn next to nothing, compared to the leading sellers of chocolate, all of which are Northern companies. The economic rents associated with the pre- and post-production phases have been growing in recent years. Meanwhile, the production phase, from which workers and small producers mainly derive their incomes, is exposed to cutthroat competition between different production sites across the world, thanks to trade and investment liberalization. Therefore, incomes generated in this stage of the value chain are kept low.

The overall result is twofold. First, this has resulted in an increase in the supply of the “global” labor force (workers and small producers who are directly engaged in production of goods and services). Second, the power of corporations to capture rents—from control of knowledge, from oligopolistic/monopolistic market structures, or from the power of finance capital over state policy—has greatly increased. Overall, this has meant a dramatic increase in the bargaining power of capital relative to labor, which in turn has resulted in declining wage shares (as a percentage of national income) in both developed and developing countries.

Implications for Workers

These processes imply worsening material conditions, for most workers, in both the periphery and the core. Imperialism has generally weakened the capacity for autonomous development in the global South, and worsened economic conditions for workers and small producers there, so that is not altogether surprising. The growth of employment and wages in China is as a break from that pattern and an example of some benefits of global integration, at least for a subset of working people in the developing world. The beneficiaries, however, remain a minority of the workers in the global South. In other countries generally seen as “success stories” of globalization, like India, the economic realities for most people are much bleaker.

The more obvious—and potent—change that has resulted from this phase of global imperialism has been the decline of the labor aristocracy in the North. The opening of trade, and with it a global supply of labor, meant that imperialist-country capital was no longer as interested in maintaining a social contract with workers in the “home” country. Instead, it could use its greater bargaining power to push for ever-greater shares of national income everywhere it operated. This was further intensified by the greater power of mobile finance capital, which was also able to increase its share of income as well. In the advanced economies at the core of global capitalism, this process (which began in the United States in the 1990s) was greatly intensified during the global boom of the 2000s, when median workers’ wages stagnated and even declined in the global North, even as per capita incomes soared. The increase in incomes, therefore, was captured by stockholders, corporate executives, financial rentiers, etc.

The political fallout of this has now become glaringly evident. Increasing inequality, stagnant real incomes of working people, and the increasing material fragility of daily life have all contributed to a deep dissatisfaction among ordinary people in the rich countries. While even the poor among them are still far better off than the vast majority of people in the developing world, their own perceptions are quite different, and they increasingly see themselves as the victims of globalization.

NOTE: Parts of this article appeared in “The Creation of the New Imperialism: The Institutional Architecture,” Monthly Review, July 2015.

]]>Globalization and the End of the Labor Aristocracy, Part 2http://triplecrisis.com/globalization-and-the-end-of-the-labor-aristocracy-part-2/
http://triplecrisis.com/globalization-and-the-end-of-the-labor-aristocracy-part-2/#commentsFri, 14 Apr 2017 17:12:52 +0000http://triplecrisis.com/?p=13208This is Part 2 of a four-part article by Jayati Ghosh, published in the March/April 2017 special “Costs of Empire” issue of Dollars & Sense magazine. Part 1 is available here. Subsequent parts will appear on Triple Crisis over the next two weeks. In this section, Prof. Ghosh focuses on the new international economic architecture for trade, investment, and property rights.

The past two decades have witnessed an explosion in the treaties, agreements, and other mechanisms whereby global capital imposes it rules upon governments and their citizenries. Unlike the conditions imposed on developing countries by the IMF and the World Bank, these rules apply even to countries that are not debtor-supplicants to international financial institutions. They require all countries to restrict their policies, though these restrictions are especially damaging to the prospects of autonomous economic development in the “periphery” of the world capitalist economy.

The Multilateral Trading System

In terms of the multilateral trading system, the Uruguay Round of the General Agreement on Tariffs and Trade (signed off in 1994) moved to a single-tier system of rights and obligations, under which developing countries have to fully implement all rules and commitments. This was a quid pro quo for access to developed-country markets in agriculture, textiles, and clothing—sectors that had previously been highly protected. This has constrained the possibilities for autonomous development in the peripheral countries, reducing the policy choices open to them and denying them some of the most important instruments that had been used by countries of the current capitalist “core” in their own industrialization.

For example, the Agreement on Trade-Related Investment Measures (TRIMS) does not allow practices like local content specifications, designed to increase linkages between foreign investors and local manufacturers. The Agreement on Trade-Related Intellectual Property Rights (TRIPS) not only allows for the concentration and privatization of knowledge as noted above, but also restricts reverse engineering and other forms of imitative innovation that have historically been used for industrialization. It has forced the extension of patent rights in many countries, allowing the patenting of life forms. Under this new property regime, a large and powerful multinational company can, for example, sue a poor small farmer in a developing country for setting aside part of the harvest as seed for the coming year, on the grounds that this violates the company’s patent rights. The Agreement on Subsidies and Countervailing Measures (SCM) prohibits subsidies that depend upon the use of domestic over imported goods, or that are conditional on export performance. Ongoing negotiations in the World Trade Organisation on Non Agricultural Market Access (NAMA) are currently proceeding on the basis of much deeper tariff cuts in developing countries, which will further deprive them of a crucial policy instrument to support their infant industries.

The Agreement on Agriculture (1995) contained fine print that effectively allowed the developed countries to continue the massive subsidization and protection of their own agriculture sectors (and agri-business interests), but prevented developing countries from doing even a small fraction of this. Most developing countries are allowed only subsidies of 10% or less, while most developed countries only have to reduce certain agricultural subsidies, while maintaining and even increasing some others. Developing countries (like India) that attempt to provide some protection to farmers and to ensure food security are coming up against constraints imposed by the agreement. All subsidies, even in developing countries, are measured in relation to 1986-88 prices, not current prices, so even low subsidies run afoul of the 10% limit. Instead of recognising the ridiculous nature of this clause, the developed countries are resisting any change and have only agreed to provide a “Peace Clause”—applying only to certain countries and only for a limited period, preventing any case being brought to the dispute settlement panel of the WTO until the matter is finally resolved.

Regional and Bilateral Trade Agreements

However, if the WTO has constricted the “policy space” for developing countries, the many regional trade agreements of the past two decades have been even worse. There are nearly 400 such agreements in force, and they have become more comprehensive over the past twenty years. Most of these agreements, especially North-South agreements, tend to be “WTO-plus” (augmenting provisions already covered by the multilateral trading regime) or “WTO-extra” (containing provisions that go beyond current WTO rules). They often require reductions of actually applied tariffs, rather than of “bound” maximum tariff rates: Countries are forced to reduce tariffs from whatever level they happen to be at the moment, even if this is already below the upper limit. They demand more deregulation of trade in services. They require more stringent enforcement of intellectual property rights and reduce exemptions. For example, they allow compulsory licensing of medicines for generic (lower-cost) production only in emergencies. They also prohibit parallel imports (purchases of needed medicines from countries with cheaper production because they have used compulsory licensing). These agreements extend intellectual property rights to areas like life forms, extend exclusive rights to test data, and make intellectual property rights provisions more detailed and prescriptive. They forbid technology-transfer and knowledge-transfer requirements, as well as conditions on the nationality of senior personnel, as conditions for access to a country’s markets. They also enter into a range of areas that the WTO still leaves open to individual countries’ policy choices, such as antitrust policy, rules on investment and capital movement, government procurement, environmental standards, and even labor mobility. Further, unlike the WTO, most regional trade agreements do not provide exceptions to countries in cases of serious balance-of-payments problems or other external financial difficulties.

In addition, there are more than 4,000 bilateral investment treaties (BITs) in force in the world. These are all about protecting and promoting private investment of all types, and effectively privileging the rights of investors over the rights of citizens in the host country. There is typically a very broad, asset-based definition of investment that includes foreign direct investment (FDI), some types of investment in stocks, purchases of real estate, and even intellectual property rights. There is also a very strong and expansive view on what constitutes “expropriation” of assets for which investors can demand compensation. It is not only outright nationalization of assets that can be interpreted as expropriation, but also all sorts of government regulation (even for environmental or labor protection) as well as taxes. So for example, in Mexico, companies that have polluted municipal water supplies—and therefore been ordered to stop production until they can prevent such pollution—have successfully claimed damages for the associated losses. Other companies have won cases under BITs when governments have imposed higher taxes on their profits.

Both bilateral and, increasingly, regional agreements are subject to dispute settlement mechanisms, both between states and between an investor and a state, that are highly arbitrary, opaque to public scrutiny, and generally pro-investor in their judgments. Since they are legally based on “equal” treatment of legal persons with no primacy for human rights, they have become known for their pro-investor bias. This is partly due to the incentive structure for arbitrators, since there is a lucrative “revolving door” for legal experts between serving as arbitrators and as legal advisors for corporations. And it is partly because the system is designed to provide additional guarantees to investors, rather than making them respect host countries’ laws and regulations.

Similarly, the rules governing international finance and debt work in ways that reinforce the unequal global power relations between large capital and people across the world. Nowhere is this more evident than in the legal structures governing sovereign (national government) debt. The lack of any coherent system to deal with debt default and to enable the restructuring of sovereign debt has led to situations in which countries and their populations are bled dry over years and even decades. “Austerity” measures that reduce public spending on social essentials are forced upon unwilling societies. Developing countries have known this for some time, but some developed countries (such as crisis-ridden economies of the European periphery, like Greece and Spain) are now experiencing the same.

Countries that somehow manage to restructure debt or that unilaterally decide to renege on some patently unfair debt taken on in the past are punished. Under the systems governing international debt, entire national populations lack even the minimum conditions of debt workout that are routinely accorded to individual and corporate debtors within national legal systems. Here, too, legal proceedings tend to be biased towards investors and show little recognition of the minimum rights of the citizenry in affected countries. (Take, for example, the travails that the government of Argentina currently faces in U.S. courts, in lawsuits brought by financial “vulture funds.”) This is another way in which contemporary imperialism is expressed.

NOTE: Parts of this article appeared in “The Creation of the New Imperialism: The Institutional Architecture,” Monthly Review, July 2015.

]]>http://triplecrisis.com/globalization-and-the-end-of-the-labor-aristocracy-part-2/feed/4Globalization and the End of the Labor Aristocracy, Part 1http://triplecrisis.com/globalization-and-the-end-of-the-labor-aristocracy-part-1/
http://triplecrisis.com/globalization-and-the-end-of-the-labor-aristocracy-part-1/#commentsTue, 04 Apr 2017 14:59:40 +0000http://triplecrisis.com/?p=13198This is part one of a four-part article, first published in the March/April 2017 special “Costs of Empire” issue of Dollars & Sense magazine. Subsequent parts will appear on Triple Crisis over the next three weeks.

Economist and Triple Crisis contributor Jayati Ghosh argues that imperialism has not disappeared, but changed shape. The direct military conquest and control of economic territory by the great powers has given way (at least some of the time) to control through multilateral agreements and international institutions. Economic territory may still mean the seizure of land, mines, or oil fields—but it also may mean privatization of public assets and services, or the extension of intellectual property rights to new realms. Where the “labor aristocracy” of the imperialist countries once shared in the bounty of empire, the new incarnation of empire as “globalization” has helped grind away the incomes and status they once enjoyed.

Twenty-first century imperialism has changed its form. In the 19th century and the first half of the 20th century, it was explicitly related to colonial control; in the second half of the 20th century it relied on a combination of geopolitical and economic control deriving also from the clear dominance of the United States as the global hegemon and leader of the capitalist world dealing with the potential threat from the Communist world. It now relies more and more on an international legal and regulatory architecture—fortified by various multilateral and bilateral agreements—to establish the power of capital over labor. This has involved a “grand bargain,” no less potent for being implicit, between different segments of capital. Capitalist firms in the developing world gained some market access (typically intermediated by multinational capital) and, in return, large capital in highly developed countries got much greater protection and monopoly power, through tighter enforcement of intellectual property rights and greater investment protections.

These measures dramatically increased the bargaining power of capital relative to labor, globally and in every country. In the high-income countries, this eliminated the “labor aristocracy” first theorized by the German Marxist theorist Karl Kautsky in the early 20th century. The concept of the labor aristocracy derived from the idea that the developed capitalist countries, or the “core” of global capitalism, could extract superprofits from impoverished workers in the less developed “periphery.” These surpluses could be used to reward workers in the core, relative to those in the periphery, and thereby achieve greater social and political stability in the core countries. This enabled northern capitalism to look like a win-win economic system for capital and labor (in the United States, labor relations between the late 1940s and the 1970s, for example, were widely termed a “capital-labor accord”). Today, the increased bargaining power of capital and the elimination of the labor aristocracy has delegitimated the capitalist system in the rich countries of the global North.

Increasing inequality, the decline in workers’ incomes, the decline or absence of social protections, the rise of material insecurity, and a growing alienation from government have come to characterise societies in both developed and developing worlds. These sources of grievance have found political expression in a series of unexpected electoral outcomes (including the “Brexit” vote in the UK and the election of Trump in the United States). The decline of the labor aristocracy—really, its near collapse—has massive implications, as it undermines the social contract that made global capitalism so successful in the previous era. It was the very foundation of political stability and social cohesion within advanced capitalist countries, which is now breaking down, and will continue to break down without a drastic restructuring of the social and economic order. The political response to this decline has been expressed primarily in the rise of right-wing, xenophobic, sectarian, and reactionary political tendencies.

21st Century Imperialism

The early 21st century has been a weird time for imperialism. On the one hand, the phase of “hyper-imperialism”—with the United States as the sole capitalist superpower, free to use almost the entire world as its happy hunting ground—is over. Instead, the United States looks significantly weaker both economically and politically, and there is less willingness on the part of other countries (including former and current allies, as well as those that may eventually become rival powers) to accept its writ unconditionally. On the other hand, the imperial overreach that was so evident in the Gulf Wars and sundry other interventions, in the Middle East and around the world, continues despite the decreasing returns from such interventions. This continued through the Obama presidency, and it is still an open question whether the Trump presidency will lead to a dramatic reduction of this overreach (“isolationism”) or merely a change in its direction.

The latter point is important, because there is little domestic political appetite in the United States for such imperial adventures, due to the high costs in terms of both government spending and the loss of lives of U.S. soldiers. The slogans that recently resonated with the U.S. electorate, such as that of “making America great again” were in that sense somewhat self-contradictory—looking towards an imagined past in which the American Dream could be fulfilled relatively easily (at least for some), without recognizing that this was predicated upon the country’s global hegemony and far-flung empire.

The global context of imperialism is a complex one, in which the contours shift constantly. Recent political changes in various countries of the North have meant that global strategic alliances are also much more fluid than at any time over the past half century. The most talked-about current examples are the changing attitude of the Trump administration towards the United States’ traditional enemy, Russia; and the complicated international politics emerging in Europe, with the Brexit vote and the emergence of right-wing political forces in a number of other European countries. But it is also evident in other parts of the world, notably in China, where traditional friends and foes are no longer so easily demarcated. Yet there is another sense in which the fundamentals of the imperialist process have not changed, even as the forms in which they are expressed are altered.

Defining imperialism broadly, as Lenin did—as the complex intermingling of economic and political interests, related to the efforts of large capital to control economic territory—it’s clear that imperialism has not really declined at all. Rather, it has changed in form over the past half century, especially when we embrace a more expansive notion of what constitutes “economic territory.” Economic territory includes the more obvious forms such as land and natural resources, as well as labor. These are all still hugely contested: The wars for oil in the Middle East, the continuing attempts at land grabs in Africa, and the struggle over the fruits of extraction of natural resources in parts of Latin America and Asia all testify to this.

But the struggle over economic territory also encompasses the search for and effort to control new markets—defined by both physical location and type of economic process. Understanding territory in this way helps us understand how imperialism is still very much alive and kicking, even though some of the more classic features (such as direct colonial control and annexations) are less in evidence.

One of the key aspects of recent capitalist dynamism has been its ability to create new forms of economic territory, bring them within the realm of capitalist economic relations, and therefore also subject them to imperialist control. Two forms of economic territory that are increasingly subject to capitalist organization and imperialist penetration today are 1) basic amenities and social services (earlier seen as the sole preserve of public provision) and 2) the generation and distribution of knowledge.

A major feature of our times is the privatization of areas that, until recently, were generally accepted as public responsibilities. Basic amenities like electricity, water, and transportation infrastructure, and social services like health, sanitation, and education all fall into this category. Of course, the fact that these were seen as public duties does not mean that they were always fulfilled. Indeed, expanding public provision and access to high-quality public infrastructure and social services has only come about historically as the result of prolonged mass struggles. And issues of inequality in access have always existed. Nevertheless, the fact that provision is no longer necessarily in the public domain, and that private provision is increasingly seen as the norm, has opened up huge new markets for potentially profit-making activity. This has been a crucial way of maintaining demand, given the saturation of markets in many mature economies, and the inadequate growth of markets in poorer societies.

Opening up such markets has occurred through a combination of inadequate public provision and changes in economic policy to encourage private investment. The expansion of the global bottled water industry, for example, is partly a result of the failure of adequate public delivery of potable water. Meanwhile, global institutions—including formal organizations such as the World Bank, the International Monetary Fund (IMF), and the World Trade Organization (WTO), as well as more informal bodies such as the World Economic Forum—have actively encouraged private investment in formerly public sectors. This is a more complicated expression of the imperialistic drive for control over economic territory than the direct annexation of geographic territory, but that does not make it any less consequential.

Another new form of economic territory, increasingly subject to imperialist penetration, relates to knowledge generation and dissemination. The privatization of knowledge and its concentration in fewer and fewer hands—especially through the creation and enforcement of new “intellectual property rights”—have become significant barriers to technology transfer and social recognition of traditional knowledge. This is evident in the case of access to medicines, even essential and life-saving drugs. Patents reward multinational companies, allowing them to monopolize production, set high prices, or demand high royalties. Similarly, control over seed patents, overwhelming held by multinational agribusinesses, have enabled monopoly control over crucial technologies for food cultivation across the world, even in the poorest societies. The cases of medicine and food are comparatively well known and highly controversial, but much the same is true for industrial technologies, as well as knowledge for mitigating and adapting to adverse environmental changes (themselves resulting from the production systems created by global capitalism).

It’s not just that national and international institutional structures that should provide checks and balances to the privatization of knowledge are more fragile and less effective than they used to be. Rather, it’s that they are actively working in the opposite direction. The numerous “trade agreements” that have been signed across the world in recent years have been much less about trade liberalization—already so extensive that there is little scope for further opening up in most sectors—and much more about protecting investment and strengthening monopolies generated by intellectual property rights.

NOTE: Parts of this article appeared in “The Creation of the New Imperialism: The Institutional Architecture,” Monthly Review, July 2015.

]]>http://triplecrisis.com/globalization-and-the-end-of-the-labor-aristocracy-part-1/feed/1Too Many Years of Living Dangerously: The UNCTAD Trade and Development Report 2016http://triplecrisis.com/too-many-years-of-living-dangerously-the-unctad-trade-and-development-report-2016/
Wed, 19 Oct 2016 14:09:04 +0000http://triplecrisis.com/?p=12968Jayati Ghosh

For many years now, the Trade and Development Reports produced by UNCTAD have been providing a voice of sanity in a global discourse on the world economy that has often appeared to be dominated by denial and irrelevance. The Report has also often proved to be remarkably prescient, for example by anticipating as early as 2006 the likely collapse of financial markets that occurred in 2008, or by pointing in the past few years to the futility of excessive reliance on monetary policies alone to lift economic growth, which policy makers are only beginning to come to grips with at present.

This year’s Report provides a similarly insightful assessment of current economic trends, which captures the dilemmas facing policy makers across the world. It summarises the poor state of the global economy, with slow growth in advanced economies (expected to be less than 2 per cent this year) and developing countries (at around 4 per cent, that is 2.5 percentage points below the pre-crisis figure). Global trade has meanwhile decelerated even more, and the commodity cycle is now in its second year of sharp downturn, even as many commodity prices have been falling since 2012. Capital flows have become more volatile again and debt crises are looming in several countries.

This reflects the unbalanced and unsustainable nature of the supposed recovery from the crisis.

As the Overview, notes, “Financial markets are chastened but unreformed, debt levels are higher than ever and inequality continues to rise. Most of the upside gains have resulted from asset price rises and increased corporate profits. Meanwhile, most of the downside adjustment has fallen on debtor countries and working families, with wages, employment and welfare provision under constant pressure from a return to austerity measures. This conjuncture might appropriately be described as a “Polanyi period”, in which the regulatory and normative framework on which healthy markets depend, having already warped, is beginning to buckle as the weight of Greenspan’s mistake is felt in an ever-widening swathe of economic and social life – from precarious employment conditions to corporate tax inversions to undrinkable tap water. Trust in political leadership is at an all-time low, just when the need for decisive political action is at an all-time high.” (TDR, Overview, page II).

As TDR 2016 notes, a major reason for this situation is the premature return to “business as usual” after the immediate effects of the Global Financial Crisis had been mitigated. Weak demand, particularly in the developed world, remains a major drag on global economic expansion, and extraordinarily loose monetary policies are doing little to revive it. Even higher levels of public debt have failed to stimulate demand and boost growth, largely because these are a consequence of balance sheet adjustments in other parts of the economy. Meanwhile, the real reason for insufficient demand – falling wage shares of national income reflecting stagnant or even declining wage incomes in many countries – is not addressed, nor has it been sought to be offset by higher investment spending.

The Report notes that the weak labour market conditions and tepid growth cannot be effectively resolved by either financial bubbles or export surges. Financial bubbles can provide a temporary boost, at best, but they tend to aggravate the deflationary gap by increasing inequality, and create supply-side distortions that impede productivity growth. Export surpluses can certainly benefit countries that achieve them, but are ultimately a beggar-thy-neighbour response in a world of insufficient global demand.” (TDR 2016 Overview Page III.)

Instead of the current economic strategies that are clearly not working, a change in policy direction is required. For most advanced countries as well as many developing countries, this would require a more proactive fiscal stance, both on spending and taxation, with supportive monetary and credit policies, stronger financial regulation and redistributive measures through an incomes policy, minimum wage legislation, progressive taxation measures and welfare-enhancing social programmes. Obviously this requires a greater degree of international co-ordination, especially for developing countries to get the policy space required for sustainable expansion, to manage external shocks and to generate structural transformation. This in turn must be delivered through greater flexibility in various international rules and changes in the international trade and investment architecture.

The latter is actually seen to be crucial, because this year’s Report, in addition to providing acute assessment of the contemporary global economy, also steps back to look more systematically at processes of industrialisation and structural change, which it defines as key to the development project. An examination of the trends in the past forty years shows that catch-up industrialisation has indeed been relatively rare, mostly evident only in some countries of East and Southeast Asia. In these regions, the share of manufacturing in GDP rose steadily to cross a threshold of 25 per cent (South-East Asia) or 30 per cent (North-East Asia) and stayed that way for a sustained period of time. This was accompanied by strong employment creation and rising productivity, allowing these countries to successfully enter global markets and drive up the rising share of developing countries in global trade in manufactures over the past few decades. As the manufacturing sector expanded, primary production also became more efficient because of declining input prices and knowledge spillovers. Similarly, the services sector also developed in conjunction with manufacturing.

In these cases of successful catch-up industrialization, steadily rising per capita investment was a key factor for reaching a critical mass in manufacturing activities. Various production, knowledge and income linkages were fostered by industrial policy that provided strong government support for selected industries, including public investment in infrastructure, targeted credit allocation, public and publicly-sponsored R&D, and access to export markets, as well as policies to influence more equitable distribution of incomes, which in turn boosted domestic demand.

But in other less successful regions and countries, manufacturing growth has fallen below overall output growth, and employment growth has been associated with little productivity growth, or vice versa. Indeed, cases of stalled industrialization have been much more common in the developing world, as shares of industrial income and employment have stagnated after some growth of manufacturing output, but at lower levels of per capita income and overall productivity (such as in India and Mexico). In some other countries, manufacturing slowed even before a solid base for sustained industrialization could be established, as in many sub-Saharan African countries.

An even more extreme case is that of premature deindustrialization, in which the shares of manufacturing value added and employment started to decline at levels of per capita income much lower than those at which developed economies and successful catch-up industrializers started to deindustrialize, accompanied by declines in relative productivity levels. A number of countries in South America since the debt crisis of the 1980s, as well as some North African countries and several transition economies after the collapse of the centrally planned system, have experienced prolonged periods of productivity stagnation or decline, in most cases coinciding with sharp falls in investment growth. Such premature deindustrialization was in general closely linked to drastic policy changes such as more restrictive macroeconomic policies, lower public investment in infrastructure and knowledge, as well as large and often unilateral trade liberalisation that affected the profitability and viability of manufacturing. Reduced State intervention to support structural transformation tended to be accompanied by more regressive income distribution that weakened domestic demand.

TDR 2016 explicitly considers the relationship between trade and industrialisation and in particular the much-discussed strategy of export-led industrialisation. It finds that, although deeper participation in international trade can increase the pace and extent of industrialization, and raise productivity both within and across industries, this causation is neither simple nor assured. Reciprocal trade liberalization opens export markets and eases access to the import of capital goods and intermediate products, but it also generates challenges for domestic industrialization, such as increasing competition from industrial imports and the difficulty that export markets for developing countries have become much more crowded and competitive, increasing the globally accessible supply of less-skilled labour at a time of general wage compression and weak aggregate demand.

What has become evident is that, other than in a few exceptional cases, export-led industrialization has generally failed to create broadly shared, high-wage employment. Enclaves of manufacturing excellence, while laudable, tend to be insufficient to generate the linkages and the economy-wide productive transformation required to achieve significant industrialization. Further, productivity gains may not lead to higher wages and social upgrading; rather, they mostly increase profits, or are used to lower prices to ensure competitive advantage.

Of course, it is also true that in the current world economy, many of the weak links between trade in manufactures and industrialization can be traced to the problem of deficient global aggregate demand. The Report emphasises that growth strategies in both North and South that are based on wage compression and fiscal austerity, lead to overall insufficient demand. Obviously, it will be increasingly necessary for developing countries to turn more regional, South-based markets, as is already partly reflected in the changing geography of international trade. But there is a pressing need for a change in policy focus as well, from export-oriented industrialization to domestic-demand driven industrialization.

The other important lesson from history is that structural transformation needs a strong investment push, and indeed this requirement becomes even more demanding, the later that countries begin to industrialize. At all levels of per capita income, the financing of investment pushes can be a major constraint on development. This is where recent tendencies towards financialisation are of some concern. In a chapter on the profit-investment nexus, the Report points out that growing financial openness and persistent instability in the international financial system have weakened this relationship in both developed and developing economies. Corporate profitability has increased almost everywhere, but investment trajectories have not increased in most countries and have even shown declines in some. This is obviously of great concern not only where a previously strong profit-investment nexus has weakened, but also in countries where such a relationship has yet to be established, in the absence of banking systems capable of financing industrialisation. So the need to restrain corporate financialization is an important issue in developed and developing economies alike. This would require changes in corporate governance and in the incentive structures of non-financial corporations, through regulation of finance as well as more attention to corporate taxation.

Ultimately, this Report is a call for renewed attention to industrial policy: not in the simplistic sense of “picking winners”, but considering various strategies for diversification and upgrading to foster strong productivity growth. This means going beyond selecting sectors to building linkages and capabilities, and obviously with an eye to policy coherence so as to bring together macroeconomic, financial, trade and industrial policies. These are all eminently sensible suggestions; all that is needed is a broader political environment that would support them.

There is much angst in the Northern financial media about how the era of globalisation led actively by the United States may well be coming to an end. This is said to be exemplified in the changed political attitudes to mega regional trade deals like the Trans Pacific Partnership Agreement (TPP) that was signed (but has not yet been ratified) by the US and 11 other countries in Latin America, Asia and Oceania; and the Trans-Atlantic Trade and Investment Partnership Agreement (TTIP) still being negotiated by the US and the European Union.

President Obama has been a fervent supporter of both these deals, with the explicit aim of enhancing and securing US power. “We have to make sure America writes the rules of the global economy. We should do it today while our economy is in the position of global strength. …We’ve got to harness it on our terms. If we don’t write the rules for trade around the world – guess what? China will!”, he famously said in a speech to workers in a Nike factory in Oregon, USA in May 2015. But even though he has made the case for the TPP plainly enough, his only chance of pushing even the TPP through is in the “lame duck” session of Congress just before the November Presidential election in the US.

However, the changing political currents in the US are making that ever more unlikely. Hardly anyone who is a candidate in the coming elections, whether for the Presidency, the Senate or the House of Representatives, is willing to stick their necks out to back the deal.

Both Presidential candidates in the US (Donald Trump and Hillary Clinton) have openly come out against the TPP. In Clinton’s case this is a complete reversal of her earlier position when she had referred to the TPP as “the gold standard of trade deals” – and it has clearly been forced upon her by the insurgent movement in the Democratic Party led by Bernie Sanders. She is already being pushed by her rival candidate for not coming out more clearly in terms of a complete rejection of this deal. Given the significant trust deficit that she still has to deal with across a large swathe of US voters, it will be hard if not impossible for her to backtrack on this once again (as her husband did earlier with NAFTA) even if she does achieve the Presidency.

The official US version, expressed on the website of the US Trade Representative, is that the TPP “writes the rules for global trade—rules that will help increase Made-in-America exports, grow the American economy, support well-paying American jobs, and strengthen the American middle class.” This is mainly supposed to occur because of the tariff cuts over 18,000 items that have been written into the agreement, which in turn are supposed to lead to significant expansion of trade volumes and values.

But this is accepted by fewer and fewer people in the US. Across the country, workers view such trade deals with great suspicion as causing shifts in employment to lower paid workers, mostly in the Global South. Even the only US government study of the TPP’s likely impacts, by the International Trade Commission, could project at best only 1 per cent increase in exports due to the agreement up to 2032. A study by Jeronim Capaldo and Alex Izurieta with Jomo Kwame Sundaram (“Trading down: Unemployment, inequality and other risks of the Trans Pacific Partnership Agreement”, Working Paper 16-01, Global Development and Environment Institute, January 2016) was even less optimistic, even for the US. It found that the benefits to exports and economic growth were likely to be relatively small for all member countries, and would be negative in the US and Japan because of losses to employment and increases in inequality. Wage shares of national income would decline in all the member countries.

But in fact the TPP and the TTIP are not really about trade liberalisation so much as other regulatory changes, so in any case it is hardly surprising that the positive effects on trade are likely to be so limited. What is more surprising is how the entire discussion around these agreements is still framed around the issues relating to trade liberalisation, when these are in fact the less important parts of these agreements, and it is the other elements that are likely to have more negative and even devastating effects on people living in the countries that sign up to them.

Three aspects of these agreements are particularly worrying: the intellectual property provisions, the restrictions on regulatory practices and the investor-state dispute settlement provisions. All of these would result in significant strengthening of the bargaining power of corporations vis-à-vis workers and citizens, would reduce the power of governments to bring in policies and regulations that affect the profits or curb the power of such corporations, and

For example, the TPP (and the TTIP) require more stringent enforcement requirements of intellectual property rights: reducing exemptions (e.g. allowing compulsory licensing only for emergencies); preventing parallel imports; extending IPRs to areas like life forms, counterfeiting and piracy; extending exclusive rights to test data (e.g. in pharmaceuticals); making IPR provisions more detailed and prescriptive. The scope of drug patents is extended to include minor changes to existing medications (a practice commonly employed by drug companies, known as “evergreening”). Patent linkages would make it more difficult for many generic drugs to enter markets.

This would strengthen, lengthen and broaden pharmaceutical monopolies on cancer, heart disease and HIV/AIDS drugs, and in general make even life-saving drugs more expensive and inaccessible in all the member countries. It would require further transformation of countries’ laws on patents and medical test data. It would reduce the scope of exemption in use of medical formulations through public procurement for public purposes. All this is likely to lead to reductions in access to drugs and medical procedures because of rising prices, and also impede innovation rather than encouraging it, across member countries.

There are also very restrictive copyright protection rules, that would also affect internet usage as Internet Service Providers are to be forced to adhere to them. There are further restrictions on branding that would reinforce the market power of established players.

The TPP and TTIP also contain restrictions on regulatory practices that greatly increase the power of corporations relative to states and can even prevent states from engaging in countercyclical measures designed to boost domestic demand. It has been pointed out by consumer groups in the USA that the powers of the Food and Drug Administration to regulate products that affect health of citizens could be constrained and curtailed by this agreement. Similarly, macroeconomic stimulus packages that focus on boosting domestic demand for local production would be explicitly prohibited by such agreements.

All these are matters for concern because these agreements enable corporations to litigate against governments that are perceived to be flouting these provisions because of their own policy goals or to protect the rights of their citizens. The Investor-State Dispute Settlement mechanism enabled by these agreements is seen to be one of their most deadly features. Such litigation is then subject to supranational tribunals to which sovereign national courts are expected to defer, but which have no human rights safeguards and which do not see the rights of citizen as in any way superior to the “rights” of corporations to their profits. These courts can conduct closed and secret hearings with secret evidence. They do not just interpret the rules but contribute to them through case law because of the relatively vague wording of the text, which can then be subject to different interpretations, and therefore are settled by case law. The experience thus far with such tribunals has been problematic. Since they are legally based on “equal” treatment of legal persons with no primacy for human rights, they have become known for their pro-investor bias, partly due to the incentive structure for arbitrators, and partly because the system is designed to provide supplementary guarantees to investors, rather than making them respect host countries laws and regulations.

If all these features of the TPP and the TTIP were more widely known, it is likely that there would be even greater public resistance to them in the US and in other countries. Even as it is, there is growing antagonism to the trade liberalisation that is seen to bring benefits to corporations rather than to workers, at a period in history when secure employment is seen to be the biggest prize of all.

So if such features of US-led globalisation are indeed under threat, that is probably a good thing for the people of the US and for people in their trading partners who had signed up for such deals.

Across the world, people have been watching recent political changes in developed countries with a mixture of bemusement and shock. From the recent anointment of Donald Trump as the Republican candidate for US President, to the rise and spread of blatantly racist anti-immigration political parties and movements in Europe, it is clear that there are tectonic shifts under way in the political discourse and practice in these countries. As these changes have gone from the unthinkable to the depressingly predictable, there are increasingly desperate attempts to understand what is driving them. This is especially the case because – despite all the talk of a shift in global power to some large “emerging nations” – what happens in the developed countries still matters hugely in international relations and to all of us in the rest of the world.

It is now obvious that increasing inequality, stagnant real incomes of working people and the increasing material fragility of daily life have all played roles in creating a strong sense of dissatisfaction among ordinary people in the rich countries. While even the poor amongst them still continue to be hugely better off than the vast majority of people in the developing world, their own perceptions are quite different, and they increasingly see themselves as the victims of globalisation.

But while this is increasingly recognised, the full extent of recent economic trends is probably less well known. A new report from the McKinsey Global Institute (“Poorer Than Their Parents? Flat or falling incomes in advanced economies”, July 2016) brings out in detail how the past decade in particular has been significantly worse for many people in the developed world.

The report is based on a study of income distribution data from 25 developed countries; a detailed dataset with more information on 350,000 people from France, Italy and the United States and the UK; and a survey of 6,000 people from France, the United Kingdom and the United States that also checked for perceptions about the evolution of their incomes.

The results are probably not surprising in terms of the basic trends identified, but the sheer extent of the change and the deterioration in incomes still comes as a surprise. In 25 advanced economies, between 65 and 70 percent of households (amounting to around 540- 580 million people) were in segments of the income that experienced flat or falling incomes between 2005 and 2014. By contrast, in the previous period between 1993 and 2005, less than 2 percent (fewer than ten million people) faced flat or falling incomes.

The situation was much worse in particular countries. In Italy, a whopping 97 per cent of the population had stagnant or declining real incomes between 2005 and 2014, while the ratios were 81 per cent for the United States and 70 per cent in the United Kingdom. This refers to market incomes, and it is true that government tax and transfer policies can change the final disposable income of households, in some cases improving it. Indeed, for the 25 countries taken together, only 20-25 per cent experienced flat or falling disposable incomes. In the US, government taxes and transfers turned a decline in market incomes for 81 percent of households into an increase in disposable income for nearly all of them.

Similarly, government policies to intervene in labour markets also made a difference. In Sweden, the government intervened with measures designed to preserve jobs, so market incomes fell or were flat for only 20 percent, while tax and transfer policies ensured that disposable income advanced for almost everyone. But in most of the countries examined in the study, government policies were not sufficient to prevent stagnant or declining incomes 2 for a significant proportion of the population, and labour market trends contributed to feelings of insecurity among workers everywhere.

While these changes were evident across the board, the worst affected were less educated workers, and particularly the younger ones among them, as well as women, especially single mothers. The report notes that today’s younger generation in the advanced countries is at real risk of ending up poorer than their parents, and in any case already faces much more insecure working conditions.

This material reality is actually quite accurately reflected in popular perceptions. A survey conducted in 2015 of British, French and US citizens confirmed this, as approximately 40 per cent of those surveyed felt that their economic positions had deteriorated. Interestingly it was also such people, as well as those who did not expect the situation to improve for the next generation, who felt most negatively about both trade and migration. More than half of this group agreed with the statement, “The influx of foreign goods and services is leading to domestic job losses,” compared with 29 per cent of those who were advancing or neutral. They were also twice as likely to agree with the statement, “Legal immigrants are ruining the culture and cohesiveness in our society,” compared to those advancing or neutral. The survey also found that those whose incomes were not improving and who were not hopeful about the future were more likely in France to support political parties such as Front National and in Britain to support Brexit.

One major driver of stagnant worker incomes has been the combination of labour market developments and public policies that have resulted in declining wage shares of national income. The report notes that from 1970 to 2014 – with the brief exception of a spike during the 1973–74 oil crisis – the average wage share across the 6 countries studied in depth (United States, United Kingdom, France, Italy, the Netherlands and Sweden) fell by 5 percentage points. In the most extreme case of the United Kingdom, it declined by 13 percentage points. These declines in wage shares occurred despite increases in labour productivity, as the productivity gains were either grabbed by employers or passed on in the form of lower prices to maintain external competitiveness.

Such declining wage shares are commonly seen to be the result of globalisation and technological changes that have led to changing patterns of demand for low-skill and medium-skill workers. But even here, it is evident that state policies and institutional relations in the labour market matter. In Sweden, where 68 percent of workers are union members and the government has in place policies that enforce contracts that protect both wage rates and hours worked, the median household received a greater share of output that went to wages, and even got more of the gains from aggregate income growth than households in the top and bottom income deciles over the 2005–14 period.

By contrast, countries that have encouraged the growth of part-time and temporary contracts experienced bigger declines in wage shares. Once again, this is especially adverse for the young. According to European Union official data, more than 40 per cent of workers aged between 15 and 25 years in the 28 countries of the EU have such insecure and low- paying contracts, while the proportion is more than half for the 18 countries in the Eurozone, 58 per cent in France and 65 per cent in Spain. This is obviously a concern for the young people who have to experience this, but it is as much a source of unhappiness and anger for their parents who worry for the future of their children.

In the meantime, they can all observe the counterpart in terms of rising profit shares in many of these rich countries. Economic processes and government policies increasingly appear to favour plutocratic tendencies. In the United States, for example, post-tax profits of firms in the period 2010-14 reached more than 10.1 per cent of GDP, a level last reached in 1929 just before the Great Depression. Ironically, in the US this is apparently favouring the political rise of one of the biggest beneficiaries of this process, Donald Trump who is himself emblematic of such plutocracy.

If economic policies do not change dramatically to favour more good quality employment and better labour market outcomes through co-ordinated fiscal expansions, to lift growth in more inclusive ways, things are likely to get even worse. The report projects that even if the previous high-growth trajectory is resumed (an unlikely prospect) at least 30-40 per cent of households would not get income gains over the next decade, especially if technological changes like more automation accelerate. And if the slow growth conditions of 2005–12 persist, the proportion of households experiencing flat or falling incomes could go to as much as 70-80 per cent by 2025.

The unpleasant and even terrifying political fallout of such outcomes is now only too evident. How much more will it take for political leaders to recognise the need for a move away from business as usual to radical change in economic policies?